Individual retirement account (IRA)
·
For individuals with income from working
·
Account at broker/dealer or insurance company
·
Income must be earned
·
Working person with non-working spouse can put
away $ into separate IRA account for spouse
·
Max: less of $5,500 or 100% of earned income for
year
·
If person has other retirement assets, IRA
contribution amount decreases
·
No collectibles in IRA or bought for IRA
Different contribution amounts for
·
a)single person with/without another retirement
plan
·
b) married people-with or without another
retirement plan
·
c)married people-with/without a retirement plan
no retirement plan
·
single person or married person can put in
$5,500 per year or $6500 if age 50 or above
·
single making $59,000 or less, marries making
$95,000 or less WITH plan can do $5500 per year $6500 if age 50 or above
·
single making >$59,000, <$69,000 or
married making >$95,000 or <$115,000 WITH plan can do a partial tax
deductible contribution
·
single making >$69,000 WITH plan or married
couple >$115,000 WITH retirement plan for both CAN NOT make tax deductible
contribution
·
married making $178,000-$188,000 with one
WITHOUT plan and one WITH plan may make full-tax deductible contribution for
person without retirement plan
·
married making >$188,000 one WITH plan, both
WITH plan-can NOT make tax deductible contributions
·
if income over limit + have retirement plan, max
contribution can be made, not tax deductible
·
married couple with nonworking spouse can
contribute for spouse under same rules as working spouse
·
married couple-one works, one does not work,
working spouse with plan contributes, not tax deductible for either
·
put in $ after tax, voluntary, already taxed,
part of cost basis-no tax at withdrawal
·
individuals<max limits can put in whole
income but can not put more than they make
·
each person must have their own IRA and pay
taxes on it when they retire
·
6% penalty for overpayment,taxed every year
until taken out
·
IRAs taxed on appreciation + penalties when they
apply
·
Person can rollover $ from trustee to new
trustee once per year
·
When person leaves job, must rollover money from
company plan to IRA in 60days
·
Banned-income averaging
An investor has contributed $40,000 to an IRA over the last
20 years. The account is now worth $120,000. Any withdrawal from the IRA by an
investor who is 65 will be taxed as which of the following?
·
All ordinary income
·
Made with pretax $
·
Appreciation tax deferred
·
Whole amount is ordinary income
·
Taxes were not paid on income originally
Roth IRA
·
Taxpayer Relief Act of 1997 created Roth
individual retirement accounts
·
$ put in is after tax $
·
10% Penalty if withdraw before 59.5
·
First dollars-contributions with Roth IRA
·
First dollars traditional IRAs +
annuity-appreciation
·
High income limits-$127,000 for individual,
$178,000 for married couple
·
If individual or spouse WITH retirement plan
with employer, there is NOT a lower amount that can be put in
·
Max contribution: less of $5,500 or 100% of
earned income, $6500 if 50 years old+
·
50+ years old can put in $6500 if under income
limit
·
If person WITH >1 IRA account total
contributions can be $5500/year or $6500/year if 50+
·
Don’t have to withdraw funds at 70.5 years old
·
10% penalty, withdraw before 59.5 years
·
If under 59.5, Withdraw regular contributions
with no tax penalty
·
If under 59.5, withdraw rollover contributions
with income tax and penalty charge
·
If under 59.5 earnings taxes as ordinary income
Roth IRA uses
·
Account must be 5+ years
·
Higher education
·
Medical expenses
·
Buying first time house
·
Withdrawal taxed as ordinary income
Coverdell education savings plans
·
To pay for kid’s college costs
·
Individual + client can donate up to $2000/year
·
Principal and earnings distribution tax free for
education expenses
Expenses
·
Tuition
·
Books
·
Supplies
·
Equipment
·
Room and board-school’s charge or $2500 if
student is off campus
·
New beneficiary needed-when kid turns 30, either
used up $ or transfer to a younger kid within 30 days
·
10% penalty: Non-education use of distributions
·
Maximum contribution does NOT include rollover
Savings plan amounts
·
Can NOT contribute once kid is 18 years old
Which of the following are similarities of a Coverdell ESA
and a traditional IRA?
·
Earning accrue tax deferred in both
·
Withdrawals must start before a certain age in
both the Coverdell ESA and the traditional IRA
·
Coverdell ESA contributions-not tax deductible
·
Coverdell-withdrawals by 30 years old,
traditional IRA withdrawals by 70.5 years old.
·
Traditional IRA and Keogh can have tax
deductible contributions
Qualified Tuition Plans-529 plan a.k.a qualified tuition
program
·
Economic Growth and Tax Relief Reconciliation
Act of 2001 provides an incentive for investors to put $ into college savings
plan
·
Federal tax exempt distributions
·
Est. under IRS
·
$ after tax
·
Don’t pay gross income tax when withdraw
·
Can do 5x the gift tax free amount first year,
no gifts for five years after that
·
Any age can put $ in plan
·
Can withdraw $ at any age
·
Est. by states as a trust
·
Managed by investment advisor firm
·
Tax exempt if beneficiary lives in state of plan
·
States decide tax treatment, beni’s of state’s plan, beni’s of outside state’s plan,
who can invest, what investments are available in plan, max-total amount of
contributions that can be made to plan, do not guarantee investments except
some special cases
·
Contributors, owners of account until $ taken out
·
Change beni to somebody outside family, earnings
are taxed as income to beni
·
Contributor to plan can’t pick investments
·
Only cash can be put in
·
Contributor can set up plan for relatives
·
Beni can be changed
·
States decide who can contribute
·
After tax contributions-grow tax deferred
·
10% penalty if not for higher ed, Withdraw $,
withdrawal/distribution taxed as income to contributor/beni
·
Contributions, a fift
·
State and estate tax benefits if 529 for paying
tuition within your state
·
No 10% penalty if death or disability of beni
What is the maximum contribution that can be made in any one
year to a 529 college savings plan without a single contributor without a
single contributor incurring a gift tax?
·
5x the gift tax free amount
·
Can’t contribute for five years after 5x gift
made
Higher education expenses
·
Tuition
·
Fees
·
Books
·
Supplies
·
Room
·
Board-must be half time students, must be reasonable
·
Special needs expenses
